GLORY DESIRE LTD AND ANOTHER v. WING YIP TOURING BUS CO. LTD AND ANOTHER

HCA 1966/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1966 OF 2012

________________________

________________________

________________

J U D G M E N T

________________

1.  This action concerns the sale and purchase of a bus registered as KE7507 (“the bus”) together with the transfer of a Passenger Service Licence (“the PSL”).

2.  The 1^st plaintiff (“P1”) and the 2^nd plaintiff (“P2”) are companies incorporated in Hong Kong with limited liability.  Their main business is that of being bus service providers providing non‑franchised bus services in Hong Kong.

3.  Chong So Chu, the wife of So Sui Sang (“So”), is and was at all material times the shareholder and director of P1.

4.  So Yuk Yi, the daughter of So, is and was at all material times the shareholder and director of P2.

5.  Although So was not a shareholder or director of P1 and P2, he was the person in control of P1 and P2.  The daily operations of both P1 and P2 were at all material times carried out by So on behalf of both P1 and P2.

6.  The 1^st defendant (“D1”) is a company incorporated in Hong Kong with limited liability.  Its main business is also that of being a bus service provider providing non-franchised bus services in Hong Kong.

7.  The 2^nd defendant (“D2”) is a company incorporated in Hong Kong with limited liability.

8.  Man Tat Shing is and was at all material times a shareholder and director of D1 and D2.

9.  D1 and D2 were previously represented by solicitors Messrs Knight & Ho.  They ceased to be the solicitors for D1 and D2 pursuant to the order of Master Lai made on 14 May 2015.

10.  At the hearing of the pre‑trial review on 8 December 2015 before Chow J, D1 and D2 were unrepresented and did not appear.  Their counterclaim was provisionally struck out at the pre‑trial review by Chow J.

11.  D1 and D2 were unrepresented at trial and did not appear.

12.  At the outset, Mr Pang SC, with Mr Chu, for P1 and P2, informed me that D1 had applied to be wound up under section 177(1)(a) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap 32.  I was further informed that the winding-up petition was fixed to be heard on 2 March 2016.

13.  On 3 March 2016, Mr Pang gave me an update of the hearing of the winding‑up petition taken out by D1.  I was informed by Mr Pang that in fact both D1 and D2 had petitioned to be wound up and that both D1 and D2 were wound up by the court on 2 March 2016. I was also informed that leave was also granted by the court on 2 March 2016 to P1 and P2 to proceed with this action against D1 and D2 on their undertaking not to enforce any judgment against D1 and D2 without leave of the court.

14.  I heard evidence from So and from Yip Shun Kin (“Yip”), the expert witness who gave evidence on behalf of P1 and P2.

15.  No evidence was called on behalf of D1 and D2.

16.  I found both So and Yip to be honest and truthful witnesses.  Their evidence was unchallenged and I accept their evidence.

17.  It is P1 and P2’s case that there was an oral agreement (“the oral agreement”) made in December 2009 for the purchase by P1 and the sale by D1 of the bus together with the PSL (“the property”) for $650,000.  The oral agreement was made between So, on behalf of P1, and Man, on behalf of D1.

18.  Pursuant to the oral agreement P1 paid a deposit of $20,000 on 9 December 2009 to D1.  The remainder of the purchase price for the property was paid by P1 to D1 on 30 December 2009. The bus was physically delivered to P1 at about that time.  The bus was a 29 seater Mitsubishi first registered on 27 August 2001.

19.  Although the bus was physically delivered to P1 on 30 December 2009, P1 was not provided with the PSL for the bus and P1 was unable to provide a bus service without the PSL.

20.  The oral agreement was partly reduced into writing in the written agreement between P1 and D1 which was signed and dated 3 January 2010 (“the 1^st contract”) with the terms and conditions contained in the 1^st contract.

21.  Clause 4 of the 1^st contract provided:

“4. When the purchaser has paid off the whole sum of purchase price but failed to have (the ownership) of the bus transferred to be under the designated name on (or before) 1^st February 2010, the purchaser will then be required to pay to the seller HK$100.00 per day whereas after 1^st April 2010, HK$250.00 per day, up till the time when the whole transaction is completed.”

22.  Clause 7 of the 1^st contract provided:

“7. The purchaser is entitled to (request) that the bus be transferred to a third party as specified by it and the seller shall give full assistance to the purchaser in all documentation and procedures at the Transport Department in respect of the transfer.”

23.  Clause 9 of the 1^st contract provided:

“9. After the payment of deposit, the purchaser shall submit to the Transport Department a complete set of documents for the purpose of application (on) or before 15 January 2010 and must provide a proof of (having done so). Failure to complete the whole set of documents in respect of the application shall be deemed as the cancellation of the transaction by the purchaser. In that case, the deposit will be forfeited. Should any loss be incurred due to other arrangements made by the purchase, (all loss and damages) shall be borne by (the purchaser) itself and the seller shall not be involved in it at all.”

24.  By an agreement in writing with the heading “Assignment of Sale and Purchase Agreement” made between P1, P2 and D1 on 17 December 2010 (“the 2^nd contract”), it was agreed by clause 1 thereof that the property be transferred to P2.  I would observe that by clause 7 of the 1^st contract as set out above, P1 was entitled to request that the bus be transferred to a third party as specified by P1.

25.  By clause 2 of the 2^nd contract, it was also agreed that P2 should enter into another sale and purchase agreement with D1 “on the same terms and conditions”.

26.  Shortly after the 2^nd contract was made and pursuant to clause 2 of the 2^nd contract, P2 and D1 entered into the sale and purchase agreement in writing which was undated (“the 3^rd contract”).

27.  On the evidence of So, which I accept, the 1^st, 2^nd and 3^rd contracts were drafted and provided to him by D1.

28.  It is clear from a reading of the 3^rd contract made between P2 and D1 that the terms and conditions contained therein are the same terms and conditions contained in the 1^st contract made between P1 and D1 save that the words “together with Passenger Service Licence” are omitted from the subject matter of the transaction in clause 1 of the 3^rd contract.

29.  On a reading of clause 1 of the 3^rd contract, the subject matter of the transaction was just the bus without the PSL, unlike the subject matter of the transaction in the 1^st contract, which was the bus together with the PSL.  Hence, there is a claim for rectification of clause 1 of the 3^rd contract.

30.  Although there were a number of alternative claims made in the amended statement of claim, Mr Pang made it plain in his closing submissions that there remained only one primary claim and one alternative claim.

31.  The primary claim (“the primary claim”) is a claim by P2 against D1 for:

(1)   rectification of the 3^rd contract;

(2)   damages for breach of the 3^rd contract, as rectified:

(i)   in lieu of specific performance, for the value of the bus and the PSL;

(ii)   loss of profits or income; and

(iii)   repayment of monies paid by mistake.

32.  Mr Pang submitted that if the court does not grant rectification as claimed, the alternative claim (“the alternative claim”) is:

(1)   a claim by P2 against D1 for:

(a)   damages for breach of the 3^rd contract:

(i)   in lieu of specific performance, for the value of only the bus;

(ii)   loss of profits or income;

(b)   repayment of the monies paid by mistake; and

(2)   a claim by P1 against D1 for damages for breach of the oral agreement or 1^st contract or 2^nd contract in lieu of specific performance of the agreement to transfer the PSL, such damages being the value of the PSL(without the bus).

33.  There was also an alternative claim against D2 which was not pursued at trial.

34.  On the evidence of So, which I accept, there is a thriving trade in Hong Kong in the sale and purchase of non‑franchised buses with a PSL.  I am satisfied that the 1^st contract was such a contract whereby P1 purchased and D1 sold the bus together with the PSL.

35.  As submitted by Mr Pang, a PSL is strictly speaking not transferable as property in law in view of section 27(7) of the Road Traffic Ordinance (Cap 374) which provides that a PSL shall not be transferable.

36.  It has, however, been held that a transfer of a PSL is a transfer of the exclusive right to operate a particular bus route.  As Lam JA (as he then was) said in Yau Wah Hing and another v Yuen Kay Ming (CACV 46/2012, 19 March 2013) when giving the Reasons for Judgment of the court at para 35:

“Whilst Mr Vaughan is correct to point out that a PSL is non‑transferrable as a matter of law (because of s27(7) of the RTO), on the facts there is clear evidence before the court that the Commissioner for Transport would entertain a request for ‘transfer’ as in the case of the ‘transfer’ from the Defendant to HKMCL in 2011. As a matter of form, it was implemented by a surrender and grant of a new PSL. However, as a matter of substance, it was a transfer of the exclusive right to operate the route from the Defendant to HKMCL.”

37.  In her Reasons for Decision dated 5 July 2011 in Lee Kwong Yan v Lai Yan Transport Company Limited (HCA 382/2011) DHCJ Tam SC said at para 5:

“While a PSL cannot be transferred as property, there is evidence before me to show that the Transport Department would normally be prepared to grant an application to the purchaser of a commercial vehicle to ‘take up’ a PSL issued in respect of the vehicle concurrently with the ‘renunciation’ of the PSL by the seller of that vehicle as part and parcel of the sale transaction. The required renunciation concurrent upon the ‘taking up’ of a PSL in this context appears to stem from the administration’s policy to put a lid to the number of operating non‑franchise buses.”

38.  It is clear on the evidence that in order to operate a non‑franchised bus in Hong Kong, one must first obtain a PSL issued by the Transport Department.

39.  In his evidence, So elaborated on the policy of the Transport Department.  This is unchallenged and I accept his evidence.  Since 2004, in respect of the buying and selling of non‑franchised buses and PSL, the Transport Department’s policy was to first receive from the original holder of the PSL a signed document declaring the assignment of the bus and the surrender of the PSL of the bus.  The Transport Department would then cancel the registration and issue a PSL to the new owner.  Without a surrender letter, the Transport Department would not issue to the new owner a PSL and would not change or cancel the registration record in the Transport Department.

40.  I am satisfied and find on the evidence of So, which I accept, that without a PSL, P1 could not operate the bus for the carriage of passengers even after the bus was physically delivered by D1 to P1 on 30 December 2009.  Although the bus was physically delivered by D1 to P1 on 30 December 2009, the evidence shows that the bus was still registered in the name of D1.

41.  Mr Pang submitted that the oral agreement was partly reduced into writing by the 1^st contract.  The part which was not reduced into writing, it was submitted, was the oral term imposing an obligation on D1 to process the application for the registration and the transfer of the PSL (“the oral term”) as pleaded at para 4A of the amended statement of claim.  It seems to me that the oral term is contradicted by the written instrument namely, the 1^st contract.  In particular, by clause 9 of the 1^st contract, it seems to me that the obligation was on P1 to submit to the Transport Department the documents for the transfer of the bus and the PSL.

42.  I would also observe that there is a plea at para 4A(b) of the amended statement of claim that clause 9 of the 1^st contract was varied or waived by the oral term.  This plea is, in my view, misconceived and unsustainable.  The oral agreement containing the oral term was made in December 2009 whereas the 1^st contract was made later in time on 3 January 2010.  Clause 9 of the 1^st contract cannot possibly have been waived or varied by the earlier oral term.

43.  I am unable to accept the submission that the obligation was on D1 to process the application for registration and the transfer of the PSL.

44.  Be that as it may, I am, however, satisfied and find that at the very least, there was an implied term in the 1^st contract imposing an obligation on D1 to provide P1 with a relevant letter of surrender of the PSL duly signed and containing correct information for P1 to submit to the Transport Department (“the implied term”) as pleaded at para 7 of the amended statement of claim.

45.  It seems to me to be plain that the 2^nd and 3^rd contracts were entered into so as to replace and substitute P1 with P2 as the purchaser of the property with the same terms and conditions as contained in the 1^st contract.  It seems to me, and I so find, that the 3^rd contract also contained an implied term imposing an obligation on D1 to provide P2 with a relevant letter of surrender of the PSL duly signed and containing correct information for P2 to submit to the Transport Department.

46.  I am also satisfied and find that the omission of the words “together with Passenger Service Licence” in the subject matter of the transaction in clause 1 of the 3^rd contract was clearly a mistake.  The documents were all prepared by D1 and So did not notice the omission as he said.  Undoubtedly, the purchase price under the 3^rd contract and the 1^st contract was the same, namely $650,000.  That cannot possibly have been the purchase price only for the bus without the PSL.  As I have said, the bus was first registered in 2001.  On the evidence of So, which I accept, the value of the bus in 2009 was about $100,000.  It is inconceivable that anyone would have agreed to pay $650,000 just for the bus alone.  I have no hesitation in finding that the omitted words “together with Passenger Service Licence” (“the omitted words”) in the subject matter of the transaction in clause 1 of the 3^rd contract were omitted by mistake and that the 3^rd contract should be rectified by the addition of the omitted words in clause 1 as claimed.

47.  I would also observe that D1 and D2 have pleaded in their re-amended defence and counterclaim (at para15(c)) that a letter of surrender of the PSL has been provided to P2 on or about 17 January 2011.  There is no evidence in support of this plea.  It is a bare allegation which I reject. It is contrary to the evidence of So, which I accept.  In my view, if a letter of surrender of the PSL had been supplied by D1 to P2, there is no conceivable reason why P2 would not have applied for a PSL to be issued to it by the Transport Department.

48.  I am satisfied and find that D1 never provided a letter of surrender of the PSL to P2.  By failing to provide the letter of surrender of the PSL to D2, I find that D1 was in breach of the 3^rd contract. As the letter of surrender of the PSL was never supplied to P2, P2 could not proceed with the application for a PSL to be issued to it by the Transport Department.

49.  I am satisfied that P2 has proved the primary claim.  The alternative claim does not arise.

50.  There was a claim for specific performance of the 3^rd contract but at trial an election was made for damages to be awarded in lieu of specific performance.

51.  I am satisfied that P2 is entitled to the relief sought.

52.  I am satisfied that an order for rectification of the 3^rd contract should be made.  The omitted words are to be inserted in clause 1 of the 3^rd contract so that the subject matter of the transaction in clause 1 of the 3^rd contract should be the bus and the PSL.

53.  I am also satisfied that P2 is entitled to damages in lieu of specific performance.  On the unchallenged evidence of Yip, which I accept, I am satisfied that the damages to be awarded to P2 are in the total sum of $3,017,800 made up as follows:

(a)   $20,000 being the residual scrap value of the bus;

(b)   $2,800,000 being the value of the PSL at the time of trial; and

(c)   $197,800 being the amount of ex gratia payment payable by the Government for scrapping the bus

54.  I am satisfied on the unchallenged evidence of Yip, which I accept, that P2 is also entitled to the sum of $920,000 for loss of profits made up as follows:

(a)   From 1 September 2011 to 31 August 2012, for 12 months at $15,000 per month = $180,000;

(b)   From 1 September 2012 to 31 December 2013, for 16 months at $17,000 per month = $272,000; and

(c)   From 1 January 2014 to 29 February 2016, for 26 months at $18,000 per month = $468,000.

55.  P2 is entitled to damages in the total sum of $3,937,800 ($3,017,800 + $920,000).

56.  There is also a claim in restitution for repayment of monies paid by mistake.  The unchallenged evidence is that payments have been made by P2 to D1 in the total sum of $163,138.65 as has been confirmed in a letter dated 6 September 2011 from the former solicitors of D1.  The total sum paid was in respect of the amounts paid to D1 purportedly under clause 4 of the 3^rd contract.  As D1 was in breach of contract, he cannot take advantage of his own wrong and retain the amounts paid to it.  Furthermore, it is plain, and I so find, that the amounts payable as set out in clause 4 of the 3^rd contract were not genuine pre‑estimates of loss suffered by D1.  In my view, they were not liquidated damages but penalties and are recoverable by P2 as monies paid under a mistake.

57.  Out of the said sum of $163,138.65 paid by P2 to D1, it appears that $1,080 was in respect of a parking fine and which did not form part of the restitutionary claim.  I am satisfied that P2 is entitled to repayment of the sum of $162,058.65 ($163,138.65 − $1,080) as monies paid by mistake.

58.  I give judgment to P2 against D1 for:

(1)   an order that the 3^rd contract be rectified by inserting the words “together with Passenger Service License” after the words “one public bus” in clause 1 of the 3^rd contract;

(2)   damages in the sum of $3,937,800; and

(3)   repayment of the sum of $162,058.65.

59.  I also make an order nisi that D1 should pay P2 its costs of the action, such costs to be taxed if not agreed, with a certificate for two counsel.

60.  I dismiss P1’s claim against D1 and D2.  I also make an order nisi that P1 should pay D1 and D2 their costs of the action, such costs to be taxed if not agreed.

61.  I also dismiss P2’s claim against D2.  I also make an order nisi that P2 should pay D2 its costs of the action, such costs to be taxed if not agreed.